The Aleph Blog » Book reviews

Book Review: Fault Lines

David Merkel — Sat, 31 Jul 2010 05:55:36 +0000

Raghuram Rajan made a name for himself at the Jackson Hole conference in 2005, which was a kind of send-off for the victorious Alan Greenspan. Alas, but the paper he brought was not appreciated at the time, as it pointed to imbalances in the financial system.

He was ahead of the curve. Thus his book on the economic crisis deserves our attention. More than most, he sees the problems in a global way, across nations and across asset classes.

His view is that for a variety of reasons, income inequality grew in the US, and in order to paper over that, the government encouraged a credit-oriented society to allow people to stretch for prosperity, hoping that the debts would not catch up with them.

It was a fool’s bargain. Debt deceives average people. They overestimate their ability to repay, and end up defaulting at high frequencies.

Like me, he is critical of the Fed’s monetary policy during the ’00s as being too easy. The “Great Moderation” was a result of over-stimulus, not of sound policy.

Similarly, he faults banking regulation for being too easy, leading to private profits with public risk.

This is a well-written book from a man who was ahead of the curve. I recommend it.

Quibbles

Where I differ with Dr. Rajan is how easy it would be to fix income inequality in the US. He suggests a number of policies, many of which sound good, but have the Federal Government intervene in matters that they can’t handle effectively. Persistent unemployment is a problem, but should that be handled by the Federal Government. Far better in my opinion that it be handled informally and locally, by family and friends, that there would be more urgency, and more willingness to compromise in finding work.

Retraining is a good thing, but also not something the Federal Government does well. One of the beauties of the US is that we have community colleges, which can retrain people at modest costs.

He also levels a decent amount of the blame at Fannie and Freddie and the Community Reinvestment Act, for making too many lousy loans. He is correct in direction, but not likely in degree. Yes, they were problems, but not the leading problems.

But these are mere quibbles on an otherwise excellent book. If you want to buy the book, you can buy it here: Fault Lines: How Hidden Fractures Still Threaten the World Economy

Who would benefit from this book

Anyone who wants a comprehensive view of the crisis would benefit from this book. It does a fairly complete job, and is not long at ~230 pages.

Full disclosure: The publisher sent me a copy, because I met the author at a conference, and asked to receive a review copy.

If you enter Amazon through my site, and you buy anything, I get a small commission. This is my main source of blog revenue. I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip. Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book. Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website. Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites. Whether you buy at Amazon directly or enter via my site, your prices don’t change.

Book Review: Book of isms

David Merkel — Wed, 21 Jul 2010 05:26:27 +0000

This book is different, and it will get a different book review from me. I have not read it, but I have scanned it.

This book aims to give extended yet compact explanations of the definitions of words that end in -isms. It does so with varying success.

Here is my thesis: the more you care about a given ism, the less you will like the explanations in the book. The entries are long compared to a dictionary, but short compared to an encyclopedia. Personally, I found entries in areas that I have detailed knowledge of to be too short, and in some cases inaccurate. This applies to many of the entries on Christianity, and some on economics.

Aside from that I found that it was less than consistent to add in isms that were not belief structures. In that were a variety of diseases, and words like prisms and schisms. Also there were behaviors, like Bushisms and Spoonerisms. I would have stuck to belief structures, and expanded them. A brief volume focused on comparative religion and philosophy would have been more valuable.

Then there are the accidents of spelling: Cataclysms and Paroxysms. Why don’t they get into the book, if prisms and schisms can get in?

I did not find this to be a book that one can sit down and read. It is worthy for reference to understand the basics of an ism.

If you want to buy the book, you can buy it here: The Economist Book of isms: From Abolitionism to Zoroastrianism

Who would benefit from this book

This book impresses me as a good book to give to someone that you’re not sure what he would like. Even new, the book is modestly priced, interesting, and doesn’t poke anyone in the eye, at least too hard. The book is small at ~240 pages, and 4X6″. It would make an excellent small gift for those for which you have no idea what to get.

Full disclosure: The publisher sent me a copy, but I did not ask for it.

Book Review: Fortune’s Formula

David Merkel — Sat, 17 Jul 2010 08:13:20 +0000

When I reviewed the book Priceless, I thought I had reviewed “Fortune’s Formula,” because I had written several pieces on the Kelly Criterion at the blog and at RealMoney (free at TSCM). But I found that I had not, so I offer you this review of a book I greatly enjoyed:

The book asks a simple question: in making a bet, investment, or business decision, what is the optimal amount of capital to allocate?

But the author, William Poundstone, is not going to give you the answer immediately. He is going to take you on a journey where you can meet many odd personalities from the ’50s to the early ’00s, and how they came to look at the problem.

Ed Thorp was fascinated with Blackjack, and originated card-counting to improve the probability of winning, to what the card counter had and edge versus the casino. He meets John Kelly, Jr. while working together at Bell Labs on Information Theory. He discovered that an economic actor with an edge could size his bets as a ratio of his edge in betting divided by the odds received on the bet.

Thorp eventually published a paper, “Fortune’s Formula: A Winning Strategy for Blackjack,” which led to a torrent of interest from gamblers. With the aid of several backers, Thorp tried out the methods with some success in Reno, with two wealthy gamblers as backers. That tale was hairy, to say the least, but they more than doubled their money.

Thorp later applied himself to the sleepy market for stock warrants in the 1960s. He developed delta-hedging along with a colleague. As the book progresses, gambling ceases to be the focus, and advanced strategies for making money on Wall Street with little risk becomes the rule. And, as in Vegas, as they took steps to lessen the edge in blackjack, on Wall Street competition itself eroded the edge. But Thorp set up a hedge fund to take advantage of securities mispricing.

One odd sidelight is the number of parties that came up with the option pricing formula known as Black-Scholes, long before B-S wrote their paper. Life reinsurance actuaries had a version of it in the ’60s, Bachelier had a version of it around 1900. And there were others, but the point was that no one took advantage of the knowledge, except in rough ways, prior to the B-S paper.

Yet option theory could be applied to a wide number of situations, convertible bonds and preferred stocks, even corporate bonds themselves, in addition to warrants and options. Those that did it early made a lot of money.

A more generalized version of the Kelly Criterion says to focus on the choice that offers the highest geometric mean return. This led to a conflict with academic economists who insisted the optimal strategy was derived from utility maximization. What is not disputable is that the Geometric mean will maximize terminal wealth, a result found by Bernoulli and Latane.

The book takes us through financial crisis after crisis, showing how bet sizes were too large relative to the results. It also takes us to the end where a number of the protagonists end up decidedly wealthy from their attempts to beat the market.

Quibbles

Though Poundstone’s aim is the Kelly Criterion, more of the book is dedicated to finding edges, whether beating the dealer in blackjack, or arbitrage of securities.

If you want to buy the book, you can buy it here: Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

Who would benefit from this book

Many people would enjoy this book, written in 2005. Poundstone tells a good story and illustrates how a number of clever men found edges, pursued them, and triumphed. The reader may not be able to beat the world after reading this, but it may teach him about how bright men found ways to pursue their advantages.

Full disclosure: I bought my copy with my own money.

Book Review: Complicit

David Merkel — Thu, 15 Jul 2010 06:10:03 +0000

I am not sure how many current economic crisis books I have reviewed. I think I am getting close to a dozen and I am currently reading “Fault Lines.” I’m not sure I want to do many more crisis book reviews. Tonight’s review is Complicit, by Mark Gilbert of Bloomberg.

Bloomberg columnists are typically good writers, with detailed knowledge of their subject areas, and a no-nonsense approach to writing. This book from Mark Gilbert is no different. As Joe Friday often said, “All we want are the facts, ma’am.”

And for the most part, that’s what you get in Complicit. It is not a long book at 173 pages, but it comprehensively chronicles the growth in leverage, and how it spread to many areas of the investment markets.

When bubbles grow, everyone is a friend. Underwriting becomes lax, limits are stretchable, FICO scores are pessimistic approximations, etc. Risk is transitory; we originate to sell. Regulators don’t want to stand in the way of seeming prosperity. Nor do politicians.

Leverage gets higher in explicit and implicit ways. Credit spreads get tight as a drum. It is a virtuous cycle… until it become a vicious cycle.

In the bust, credit spreads rise, cutting off the possibility of refinancing. Then asset defaults come, and GSE and bank insolvencies.

Central banks did not view inflation broadly enough, focusing on goods price inflation, and ignoring the asset inflation that was distorting the economy. They disclaimed an ability to see, much less deal with bubbles.

The high yield market became a frenzy for yield, with CDO equity bidding for lousy bonds and default protection on lousy corporations. Debt spreads tightened to levels that indicated perfection had arrived.

Investors chased risk, seeking returns. There were too many parties willing to make fixed commitments, because they needed to earn a lot. Balance sheets were ignored, and income statements were everything. History being bunk, was thrown out the window, because it was different this time, we were in a new era.

The crash in Shanghai was the first warning in February 2007, followed by the equity quant crisis in August 2007, and the breakdown in the money markets. All of the clever ways parties used to lever up short-term credit blew up, forcing banks to take credit back onto their balance sheets. At that point, everyone should have dumped the banks, but few did; leverage was too high, and asset prices were falling.

The critical decision was bailing out Bear Stearns. I agree with Gilbert; either both Lehman and Bear should have been bailed out or neither. I think not bailing Bear and Lehman out would have led to the best outcome. After Bear failed, other banks would have moved to straighten themselves out. We might not have had as much failure had as we eventually did. The inconsistency of regulation, as well as the unwillingness or regulators to be tough added to the crisis.

The book covers the September 2008 climax well, but takes us past that, offering possible solutions. I particularly liked the ideas of limiting the number of academics in important regulatory posts, and having more regulators with practical experience. I also liked central bankers being proactive on bubbles, and the asset/liability matching inherent in paying those that make long term decisions with financial instruments that last for the term of the decision, and are contingent on the credit quality of that decision. An example would be paying securitization originators with pieces of the subordinated tranches.

I liked the book; for those with limited time, the book is particularly suitable, because it is brief.

Quibbles

Gilbert’s style is hard-hitting; though many financial companies took advantage of government largesse, few practically considered the possibility of bailouts while the boom was going on; they were pursuing profit with little thought of systemic risk. There was a lot of greed, but in my opinion, few expected bailouts, but took them when they were offered.

Who would benefit from this book?

The book is available here: Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable (Bloomberg)

Full disclosure: The publishers sent me copies of these books, hoping that I would review them. I review about 80% of the books that get sent to me.

Brief Reviews of Three Books

David Merkel — Sat, 10 Jul 2010 07:23:37 +0000

These three book reviews are for books that I scanned, and did not read in depth.

Quantitative Equity Investing

The first book: Quantitative Equity Investing, is a book for practitioners with strong math skills, not average investors. It reviews basic econometrics and factor analysis, and then applies these tools in an effort to sort out anomalies in investment markets, tease out important factors driving markets, and find workable trading strategies, considering execution costs, slippage, etc. It has a brief section on algorithmic and high frequency trading.

On the whole, I didn’t find anything that new or amazing in the book. Though there were a few things in the book that I hadn’t seen before, they were trivial things that I looked at and said, “Oh, yeah, of course.”

The book is generic in the way that it deals with the topic. It is no going to give you ideas to pursue, but only tools that you can use if you have ideas tht you want to analyze, and turn into strategies.

Who would benefit from this book?

You have to have a very strong math background, including the type of Matrix Algebra that one would use in graduate-level Econometrics. To that end, this book would be most useful to grad students wanting an introduction to how to apply their math skills to the markets.

The book is available here: Quantitative Equity Investing: Techniques and Strategies (The Frank J. Fabozzi Series)

The New Science of Asset Allocation

This book uses Modern Portfolio Theory in order to analyze asset allocation decisions. Those that have read me for a while know that I think that is a flawed paradigm, in need of replacement. For those that want a reasonable understanding of that paradigm in a short space, the book does that very well.

That said, the book has its virtues. The chapter on the “Myths of Asset Allocation” shows that the authors have some depth of insight into the foibles and misunderstandings that surround asset allocation. The book also goes into the importance of qualitative analysis of managers, looking up from the numbers so that you can avoid allocating money to the next Madoff. It also describes the use of derivatives in order to control risk exposures.

Each chapter ends with a short summary of the takeaways from the chapter, which serves to reinforce the points of the book.

Though the book has the word “new” in the title, I did not find much new in it. If one is looking for novel implementation methods for asset allocation, best to look elsewhere.

Who would benefit from this book?

This is not a book for average investors. It is for professionals who want to brush up their asset allocation skills, and young professionals wanting insight into asset allocation.

The book is available here: The New Science of Asset Allocation: Risk Management in a Multi-Asset World (Wiley Finance)

The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices

To me, this was the most interesting book of the three, but I feel it was mistitled. A better title would have been: “Fueled: The Effects of Using Food for Fuel” or something like that, because the central question of the book is to what degree has using crops to produce biomass for fuel production (usually ethanol) affected the costs of food and fuel.

I found the book is very even-handed, to a fault. It argues that the use of crops for fuel production had little impact on food costs, and that there were many other factors that made food prices rise when ethanol production was going gangbusters. Weather, domestic and foreign demand and many other factors had a role in moving food prices, not just ethanol.

After reviewing the book, I have a better sense of the complexity of the question, and that it will not admit easy answers.

Who would benefit from this book?

Anyone who wants a basic understanding of food economics, and how that is impacted by a wide number of factors including using crops for the production of fuel would benefit from this book. The book is well written, and seemingly balanced.

The book is available here: The Economics of Food: How Feeding and Fueling the Planet Affects Food Prices

Full disclosure: The publishers sent me copies of these books, hoping that I would review them. I review about 80% of the books that get sent to me.

Book Review: Priceless

David Merkel — Fri, 09 Jul 2010 06:43:52 +0000

I really enjoyed the book Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street (review forthcoming), so when I learned the William Poundstone had written a new book, I went out and bought it.

This book, Priceless: The Myth of Fair Value (and How to Take Advantage of It), covers rationality in decision making, and how markets and marketers take advantage of the deficiencies in rationality in average people.

There are many in the investment community that admire behavioral finance, and many who say that it might be true, but where are the big profits to be made from it?

This book doesn’t cover behavioral finance per se, but it does cover its analogue in pricing and marketing. In a negotiation, the first person to put a price on the table tends to push the final price agreed to closer to his price. Leaving aside no-haggle dealerships, why do car dealers post high prices for vehicles? Because only a minority does the research to understand what the minimum price is that a dealer will accept. The rest pay more, often a lot more. Personally, I do a lot of research before I buy a car, and it helps me spot dealer errors in pricing.

The book is replete with examples of how there is no “fair” way to price things out. What are the proper damages for a jury settlement? The attorney for the plaintiff is incented to come up with the highest believable amount for the jury, because they will render a verdict less than that. Make the ceiling as high as possible, and the plaintiff will get more.

We call placing the first price on the table “anchoring,” because it pulls the final result toward itself. The book is filled with experiments dealing with anchoring.

The book also spends a lot of time on the “ultimatum game,” where a person gets $10, and must offer some of it to a second person, but if the second person turns him down, the first person gets nothing. The main lesson here is that pride is stronger than greed. Yes, it can be construed as a question of fairness, but when someone gives up money to deny money to someone else, it is not fairness but envy. Why pay to make someone else worse off? To teach him a lesson? What an expensive lesson.

Much of this book was a walk down memory lane for me. I discovered Kahneman and Tversky in the Fall of 1982, and I found their ideas to be more cogent than much of the “individuals maximize utility” cant that was commonly heard from most professors teaching microeconomics. People are far more complex than homo oeconomicus. Small surprise that most tests of microeconomics as a system are not confirmed by the data.

Kahneman and Tversky showed via a wide array of examples that the decisions people make are affected by the way they are presented to them. People can be manipulated in limited ways in order to affect the decisions that they make.

The book deals with many marketing tricks, particularly the powerful word, “free,” and how it dupes people into buying something to get something for free. For another example, why companies sell really expensive items that few will want, because people will buy the next most expensive item with greater probability, versus less expensive items of the same class.

Book Review: Confidence Game

David Merkel — Sat, 12 Jun 2010 05:55:03 +0000

This book review is special to me. I don’t often get quoted in books, but in this book I get quoted on page 98. Here is the quotation:

When I asked an insurance analyst whether he thought the credit rating companies would ever rethink MBIA’s top rating, he was skeptical. “For Moody’s [or Standard and Poor's] to put a bond insurer on negative watch (indicating a rating cut was being considered) could have extremely negative ramifications” for the entire bond insurance business, said David Merkel with Hovde Capital Advisors in Washington, DC. “It’s a bit of a confidence game.”

Confidence Game indeed. I did not see the phrase elsewhere in the book, but I may have missed it. If I inadvertently titled the book, I am honored.

I do not remember talking to the author, Christine Richard, but what she quoted was broadly representative of half of my view on the financial guarantee insurers. I believed that it would be very difficult for the rating agencies to downgrade the financial guarantors, because they were such a large part of their AAA ratings, and because they would lose money in the short run from doing so. Though it was written a year later, this article at RealMoney reflected my views.

In the short run, I viewed the rating agencies and financial guarantors as co-dependent. The rating agencies would protect the guarantors for as long as they could, and after that, the bottom would fall out, and it would become a “free fire” zone.

All in all, over the next five years I wrote over 30 times about the financial guarantors. Here is a sample of that (in rough chronological order):

Again, my view was that the financial guarantors would eventually be downgraded, but that the rating agencies would delay it for as long as they possibly could. That is what happened.

Now, as for Bill Ackman, he was prescient; he saw the problems early — way too early. As I said about Markopolous and Madoff, it is usually a mistake to obsess over something that is manifestly wrong, but that you can’t affect. Ackman spun his wheels for years over MBIA, and he was right eventually. Many other men would have given up, but not Ackman. And part of that is the nature of shorting; it is normally supposed to be a tactical discipline rather than a strategic one. There are few companies that one can short into the ground, and Ackman almost went that way with MBIA.

But when you are right, you are right, so long as your funding base sticks with you. Ackman had loyal investors, because the gains took years to manifest.

As for the author, she has carefully balanced the words of Ackman versus the words of others in the situation. She has done an admirable job of being neutral while still portraying the victor fairly; would that the heads of MBIA talked to her more. Sadly, they come off as a bunch of hacks who don’t understand that their models relied on a highly liquid economy, with rising housing prices.

I recommend this book highly. If you want to buy the book, you can buy it here: Confidence Game: How a Hedge Fund Manager Called Wall Street’s Bluff.

Who would benefit from this book

Most average investors could benefit from the book. It would tell them that economic systems that rely on third-party appraisals are inherently fragile. They can be gamed by those with a concentrated interest for a time, until reality catches up with them.

Full disclosure: Janet Tavakoli told me I was quoted in the book, so I asked the publisher for a copy to review.

Book Review: The Great Reflation

David Merkel — Thu, 27 May 2010 06:32:27 +0000

One quick note for readers before I begin: I passed my Series 86 exam with an 88% score. I did better than I expected. Now I am studying for the 87 — my how interesting it is to study law… BTW, the next book I am reviewing is Confidence Game.

The Great Reflation

I wish I had written this book. Of course, Tony Boeckh has resources that I don’t, given his prior connections to the Bank Credit Analyst. When I subscribed to the Bank Credit Analyst, I always prized their insights.

The Great Reflation follows many themes that I discuss regularly:

Are we facing inflation or deflation? Inflation of the currency or goods prices, and deflation of assets?
In the bull phase, liquidity is a synonym for willingness to borrow. In the bust phase, illiquidity is a synonym for inability to sell assets to pay off debts.
Public borrowing has been substituted for private borrowing, with an attendant increase in sovereign risk.
Whether there are central banks or not, economies go through credit cycles. Because the Fed facilitated this cycle, the debt bubble is bigger, and the cleanup will be huge.
Deleveraging is needed to restore prosperity, but there will be years of pain before that starts, assuming that the politicians are willing to see it through.
In the short run, the US has avoided a deeper crisis because of their ability to borrow. This sets the stage for a larger crisis later.
Acting to reflate assets after a bust sets the stage for a new bubble.
Asset allocation is tough when interest rates are low, and there is no obvious desirable safe asset class. Be nimble, and react to changes in valuations driven by emotions.
Even in crisis times, stocks can be valuable investments; one merely has to get the fundamentals and timing right.
Bonds are easy — think about interest rate risk, credit risk, and inflation risk.
He is bearish on the Dollar over the long term, but it could be the best of a bunch of bad developed market currencies for a long time.
Gold might be a bubble, or it might go considerably higher. He favors the bubble argument. Same for commodities.
Real estate prices won’t do anything amazing, good or bad.
America is in decline. Can it recover? (It has a lot of advantages, but unless the average American citizen is willing to sacrifice and clean up his own life, the answer is no.)
This will lead to a decrease in American influence abroad. That will lead to a less stable world.

In his chapter on stocks, and his chapter on bonds, and chapters on other asset classes, the author hands out a wealth of knowledge on how to analyze fundamentals, sentiment, and technicals of asset classes.

He also comes to the conclusion that I do, that there are no easy asset allocation decisions here, and that one should diversify widely in order to preserve assets. Also, he concludes that there is no easy endgame for heavily indebted nations, and that there will be a reckoning, though whether that means inflation or deflation is impossible to tell in advance.

I enjoyed the book and would recommend it highly. My only misgiving is that there wasn’t much new for me in the book, but it was very well presented.

If you want to buy the book, you can buy it here: The Great Reflation: How Investors Can Profit From the New World of Money

Who would benefit from this book

Most average investors could benefit from the book. It would give them a deep feel for the difficulties that we are now in. It would tell them that there are no easy solutions, and that broad diversification is warranted, together with nimbleness to profit from volatility.

Full disclosure: The publisher e-mailed me, and I requested a copy.

Book Review: No One Would Listen

David Merkel — Thu, 13 May 2010 06:34:47 +0000

This is a book about Harry Markopolos, who is the author of this book. He talks about how he attempted for years to expose the fraud that was Bernie Madoff.

The book takes the following form (from my view of how the author sees it):

How he came to a quick conclusion that Bernie Madoff was a fraud.
How he tried to convince others of that view, especially those that were feeding more money to Madoff.
Two journalists took his side and wrote about Madoff in 2001 or so, but to no avail.
Trying to come up with a similar strategy that would work, though it would return much less than Madoff’s supposed returns, and finding few would invest in it.
Fruitless wranglings with the clueless SEC.
Finally, in 2009, Madoff blows up.
Vindicated, he talks to the media, Congress, and anyone who will listen.
He excoriates the toothless SEC, and proposes better ways to root out financial fraud.

That’s the book in a nutshell. But stylistically, the book harps on how no one would listen. Well, duh. No one did listen, or the book would have been over sooner.

People are not Vulcans. They aren’t logical. Most don’t think; instead, they mimic. “If it works for him, it will work for me also.”

That was the case with Madoff. He maneuvered many sheep into position to be fleeced, and worse, they begged for the privilege to be his clients.

There were many red flags flying:

No independent custodian
No independent Trustee
Small Auditor, incapable of auditing such an enterprise.
Returns were too smooth for being so high.
The asset size was to large for the markets supposedly employed.
Even front-running profits would not be enough, were Madoff to do that.
No profit motive. Other managers with lesser track records charged more.
Marketing was by invitation.
Investors were sworn to secrecy.
And more, read the book.

Markopolos saw all of this, and ten years before it all blew. All that said, I came away less than fully impressed with Harry Markopolos. When I counsel people in trouble, I often tell them, “Don’t let the one who troubles you define your life. You should be living for more than to see the one who troubles you punished.” Markopolos triumphed here; good for him. But many people in similar situations become fixated on seeing the enemy punished, and ruin their lives, focusing on punishing another, rather than doing good themselves. There is a proper humility that should come to many of us when we can’t prove something beyond a shadow of a doubt, where we must give up.

My view is that Markopolos should have given up earlier, even though he succeeded in the end. I have known too many people who have destroyed their lives on similar quests. Good for Harry that he succeeded, but it was more likely that he would have ended up destroying his life.

And do I need more proof than that he had a plan to kill Madoff if Madoff threatened to kill him? Throughout the book, there is no indication that Madoff would try to kill his enemies.

This was a book that needed a strong editor. Much as I liked it because I appreciated the tale of the rise and fall of Madoff, someone needed to grab control of the narrative, and make it less personal for Mr. Markopolos.

Then again, if that had happened, the book would have been better written, but less colorful. Hearing the off-color remarks of Mr. Markopolos is entertaining, if off-key.

With all that I have said here, I strongly recommend the book. The best part of the book, though the least graphic, is the last chapter, where he recommends solutions, all of which I think make eminent sense.

If you want to buy the book, you can buy it here: No One Would Listen: A True Financial Thriller

Who would benefit from this book

Most average investors could benefit from the book. What it would point out to them is that if something seems to good to be true, it usually is, and that they should do their own due diligence.

Full disclosure: The publisher e-mailed me, and I requested a copy, if they had an extra one.

Book Review: Who Can You Trust With Your Money?

David Merkel — Sat, 08 May 2010 05:39:18 +0000

The author of this book has been through the ringer. As one who advised people to be careful in their investing, she found that her husband had been stealing from his investment clients. Shades of Madoff and his sons.

She uses her ex-husband as an example of what to avoid in investment advisors, and adds in data from the Madoff scandal. She then moves on to be more generic in what investors have to look for in order to avoid being cheated.

The book moves on to explain financial planning, and understand:

Certifications
Compensation and Fee Structures
Formal Communications
All the parties that affect pooled investments
How to choose an advisor
Red flags
How to employ an advisor
How to maintain the relationship
How to deal with minor and major failure in the advisor relationship.

She covers all of it. It is very basic, and not flashy. The juiciest part of the book is the troubles she had with her ex-husband. The rest is all business, which isn’t bad, but it could have benefited from counterexamples to explain why this is the right way to do things.

Quibbles

The book has an exciting start, and it is all business after that. That is not horrible, but could have been more done to motivate the important aspects of protecting investments through citing more case examples.

If you want to buy the book, you can buy it here: Who Can You Trust With Your Money?: Get the Help You Need Now and Avoid Dishonest Advisors

Who would benefit from this book

Most average investors could benefit from the book.

Full disclosure: This book arrived in my mailbox; to the best of my knowledge, I never requested a copy.